In Uncategorized on 04/27/2015 at 16:48

This was the consummation I devoutly wished in my young day. I wanted to sit behind a ten-acre desk in the corner office overlooking Central Park, with my spit-shined Ballys perched upon a corner of said desk, throwing disdainful glances and imprecations at juniors and other lesser mortals, two-Martini lunching at the toniest spots in town, and refusing to attend the annual bloodbath (I mean compensation meeting) because I had already taken 75% of the net profits, leaving the rest for the lackeys to scuffle for.

Fortunately, I never was. And the desire waned rapidly, when I beheld the fates of those who got there.

But David H. Methvin claims he’s both non-working and not even a partner in the eponymous 2015 T. C. Memo. 81, filed 4/27/15.

Judge Kerrigan is busy today handing out T. C. Memos., but not too busy to disabuse Dave of the notion.

Dave has a minuscule working interest in some oil and gas deals (2% to 3%, not more). For more about working interests, see my blogpost “Honor Your Partner”, 8/26/13.

Dave’s operating agreements all said that they weren’t going the subchapter K (partnership) route and that no partnership rules would be followed. And Dave got 1099-MISCs for his income, and a statement of allocable expenses, made a modest profit and paid income tax.

So what’s the skirmish with IRS?

Dave never paid SE, a big $690 for the year at issue. IRS says he’s a partner, so owes SE. Dave says he never participated, couldn’t vote or do anything else. So how is he a partner?

Judge Kerrigan will tell him for a mere sixty bucks.

“‘Net earnings from self-employment’ is generally defined as the gross income derived by an individual from any trade or business carried on by the individual, less allowed deductions attributable to such trade or business, plus his distributable share of income or loss from any trade or business carried on by the partnership of which he is a member. Sec. 1402(a).” 2015 T. C. Memo. 81, at  p. 4.

OK, says Dave, but I wasn’t a partner.

Wrong, says Judge Kerrigan.

“A partnership is broadly defined in the Code as ‘a syndicate, group, pool, joint venture, or other unincorporated organization, through or by means of which any business, financial operation, or venture is carried on, and which is not, within the meaning of this title, a trust or estate or a corporation; and the term “partner” includes a member in such a syndicate, group, pool, joint venture, or organization.’ Sec. 7701(a)(2); see sec 1.1402(a)-2(f), Income Tax Regs. Thus, for Federal tax purposes, the term ‘partnership’ is not limited to the common law meaning of partnership but is broader in scope and includes groups not commonly called partnerships. Sec. 301.7701-1(a)(1) and (2), Proced. & Admin. Regs.” 2015 T. C. Memo. 81, at pp. 4-5.

So mox nix that Dave’s oil and gas buddies didn’t file a 1065 or give him a K-1, or make any of those good Subchapter K elections. And mox nix that Dave wasn’t rousting about or roughnecking or whatever else they do on oil rigs; those who were, were his agents, and what cash he got was his distributive share of the earnings of what they did.

And even if Dave’s piece of the action was minuscule, and even if he couldn’t so much as look at an oil rig, he still had a piece of the action.

Finally, that Dave got by in previous years doesn’t matter; each year stands on its own. Dave is in a joint venture or pool, and that’s enough.


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